Morgan Stanley picks the top 90 global sustainability stocks that will soar as economic recovery gets underway — including one with an upside of 137%

  • Morgan Stanley shares the top 90 sustainability stocks that are best-placed to gain in a cyclical recovery, each with the potential to rally by at least 10% in price.
  • The bank is overweight cyclical investments going into 2021.
  • ESG investments will continue to increase next year.
  • Visit Business Insider's homepage for more stories.

Sustainability has become a key theme in the rhetoric across the financial community, and now with a broad economic recovery forecast in 2021, alongside policy tailwinds that favour investment in assets that meet stricter ethical criteria, Morgan Stanley is gearing its own portfolios towards cyclical stocks in the ESG universe.

The companies, ranging across Asia/Pacific, Europe, Latin America and North America were spotlighted in a research note published on Monday, including ESG strategist Jessica Alsford whom Business Insider exclusively interviewed last month.

Morgan Stanley forecast that the structural growth trend will continue, with flows into ESG funds up by around 102% this year, the note said.

Flows in November alone accounted for at least $47 billion, versus an average of $13 billion in 2019. ESG exchange-traded funds also accounted for more than 10% of overall ETF flows and ESG-labeled bond issuance is up by more than 75% at $490 billion, compared to full year 2019, the strategists wrote.

"We expect more of the same in 2021, driven by greater focus on sustainability themes by corporates, policy makers and investors alike," the team wrote.

Asia and the US are likely to gain share in the ESG market, as Europe has been the "dominant region for sustainable investing," the note said. Morgan Stanley is predicting stronger growth in 2021 in Asia and North America.

Morgan Stanley have a general preference for "cyclicality across all regions, but especially in the US and Europe, where they are also overweight financials," the note said.

Using the bank's 'Sustainable Solutions' database, the team identified these cyclical and financial companies generating at least 20% of revenues from products and services that "help to solve sustainability challenges globally, whilst also being rated Overweight and offering at least 10% upside to the price target," the note said.

These are the 90 stocks Morgan Stanley are recommending:

China Railway Construction

  • Ticker: 1186.HK
  • Sector: Industrials
  • % REV Exposure: 83%
  • % Upside to price target: 137%

China Railway Signal & Communication

  • Ticker: 3969.HK
  • Sector: Information Technology
  • % REV Exposure: 100%
  • % Upside to price target: 94%

China Machinery Engineering Corp

  • Ticker: 1829.HK
  • Sector: Industrials
  • % REV Exposure: 100%
  • % Upside to price target: 79%

  • Ticker: 0552.HK
  • Sector: Industrials
  • % REV Exposure: 100%
  • % Upside to price target: 78%

China Railway Group

  • Ticker: 0390.HK
  • Sector: Industrials
  • % REV Exposure: 88%
  • % Upside to price target: 80%

VenusTech

  • Ticker: 002439.SZ
  • Sector: Information Technology
  • % REV Exposure: 100%
  • % Upside to price target: 57%

CCCC

  • Ticker: 1800.HK
  • Sector: Industrials
  • % REV Exposure: 84%
  • % Upside to price target: 57%

Maoyan Entertainment

  • Ticker: 1896.HK
  • Sector: Consumer Discretionary
  • % REV Exposure: 80%
  • % Upside to price target: 56%

Hollysys Automation Technologies

  • Ticker: HOLI.O
  • Sector: Information Technology
  • % REV Exposure: 70%
  • % Upside to price target: 52%

China Lesso Group Holdings Ltd

  • Ticker: 2128.HK
  • Sector: Industrials
  • % REV Exposure: 50%
  • % Upside to price target: 54%

Foxconn Industrial Internet Co. Ltd

  • Ticker: 601138.SS
  • Sector: Information Technology
  • % REV Exposure: 90%
  • % Upside to price target: 48%

21Vianet

  • Ticker: VNET.O
  • Sector: Information Technology
  • % REV Exposure: 100%
  • % Upside to price target: 46%

S&T Motiv

  • Ticker: 064960.KS
  • Sector: Consumer Discretionary
  • % REV Exposure: 35%
  • % Upside to price target: 40%

China New Higher Education Group Ltd

  • Ticker: 2001.HK
  • Sector: Consumer Discretionary
  • % REV Exposure: 100%
  • % Upside to price target: 42%

Sinopec Engineering Group Co Ltd

  • Ticker: 2386.HK
  • Sector: Industrials
  • % REV Exposure: 86%
  • % Upside to price target: 37%

Kingsoft Corp Ltd

  • Ticker: 3888.HK
  • Sector: Information Technology
  • % REV Exposure: 100%
  • % Upside to price target: 35%

Yuhua Education

  • Ticker: 6169.HK
  • Sector: Consumer Discretionary
  • % REV Exposure: 100%
  • % Upside to price target: 36%

Sinofert Holdings

  • Ticker: 0297.HK
  • Sector: Materials
  • % REV Exposure: 100%
  • % Upside to price target: 32%

Rise Education Cayman Ltd

  • Ticker: REDU.O
  • Sector: Consumer Discretionary
  • % REV Exposure: 100%
  • % Upside to price target: 32%

OneConnect Financial Tech Co Ltd

  • Ticker: OCFT.N
  • Sector: Information Technology
  • % REV Exposure: 100%
  • % Upside to price target: 31%

Alibaba Group Holding

  • Ticker: BABA.N
  • Sector: Consumer Discretionary
  • % REV Exposure: 100%
  • % Upside to price target: 30%

Giant Manufacturing

  • Ticker: 9921.TW
  • Sector: Consumer Discretionary
  • % REV Exposure: 100%
  • % Upside to price target: 22%

Orora Limited

  • Ticker: ORA.AX
  • Sector: Materials
  • % REV Exposure: 100%
  • % Upside to price target: 28%

Tongcheng-Elong Holdings Ltd

  • Ticker: 0780.HK
  • Sector: Consumer Discretionary
  • % REV Exposure: 100%
  • % Upside to price target: 23%

MphasiS Limited

  • Ticker: MBFL.NS
  • Sector: Information Technology
  • % REV Exposure: 100%
  • % Upside to price target: 23%

NEXTDC Ltd

  • Ticker: NXT.AX
  • Sector: Information Technology
  • % REV Exposure: 300%
  • % Upside to price target: 23%

Amcor plc

  • Ticker: AMC.AX
  • Sector: Materials
  • % REV Exposure: 100%
  • % Upside to price target: 23%

LG Chem Ltd

  • Ticker: 051910.KS
  • Sector: Materials
  • % REV Exposure: 32%
  • % Upside to price target: 24%

Commentary:

051910.KS, Overweight, PT W1,000,000; Analyst: Young Suk Shin, Sector: Energy and Materials

"Our analyst Young Suk Shin is bullish on the long-term growth outlook of LG Chem's electric vehicle (EV) battery business. Leveraging its economies of scale, quality products, and proven track record, he sees LG Chem emerging as one of the major winners in the global EV race, while changing industry dynamics should allow the leading EV battery producers such as LG Chem to further distance themselves from the rest of the pack," the note said.

China Conch Venture Holdings Ltd

  • Ticker: 0586.HK
  • Sector: Industrials
  • % REV Exposure: 154%
  • % Upside to price target: 22%

Super Retail Group

  • Ticker: SUL.AX
  • Sector: Consumer Discretionary
  • % REV Exposure: 38%
  • % Upside to price target: 19%

Hota Industrial Mfg.

  • Ticker: 1536.TW
  • Sector: Consumer Discretionary
  • % REV Exposure: 30%
  • % Upside to price target: 12%

TAL Education Group

  • Ticker: TAL.N
  • Sector: Consumer Discretionary
  • % REV Exposure: 100%
  • % Upside to price target: 17%

GDS Holdings Ltd

  • Ticker: GDS.O
  • Sector: Information Technology
  • % REV Exposure: 100%
  • % Upside to price target: 15%

Larsen & Toubro Ltd

  • Ticker: LART.NS
  • Sector: Industrials
  • % REV Exposure: 100%
  • % Upside to price target: 16%

Hon Hai Precision

  • Ticker: 2317.TW
  • Sector: Information Technology
  • % REV Exposure: 90%
  • % Upside to price target: 16%

China BlueChemical

  • Ticker: 3983.HK
  • Sector: Materials
  • % REV Exposure: 55%
  • % Upside to price target: 15%

LandMark Optoelectronics Corporation

  • Ticker: 3081.TWO
  • Sector: Information Technology
  • % REV Exposure: 90%
  • % Upside to price target: 11%

Infosys Limited

  • Ticker: INFY.NS
  • Sector: Information Technology
  • % REV Exposure: 100%
  • % Upside to price target: 14%

HCL Technologies

  • Ticker: HCLT.NS
  • Sector: Information Technology
  • % REV Exposure: 100%
  • % Upside to price target: 14%

IDP Education Ltd

  • Ticker: IEL.AX
  • Sector: Consumer Discretionary
  • % REV Exposure: 100%
  • % Upside to price target: 12%

Chroma Ate Inc.

  • Ticker: 2360.TW
  • Sector: Information Technology
  • % REV Exposure: 30%
  • % Upside to price target: 14%

New Oriental Education &Technology Group

  • Ticker: EDU.N
  • Sector: Consumer Discretionary
  • % REV Exposure: 100%
  • % Upside to price target: 11%

Nufarm Ltd

  • Ticker: NUF.AX
  • Sector: Materials
  • % REV Exposure: 100%
  • % Upside to price target: 12%

3P Learning

  • Ticker: 3PL.AX
  • Sector: Consumer Discretionary
  • % REV Exposure: 100%
  • % Upside to price target: 10%

TeamViewer AG

  • Ticker: TMV.DE
  • Sector: Information Technology
  • % REV Exposure: 100%
  • % Upside to price target: 32%

Johnson Matthey

  • Ticker: JMAT.L
  • Sector: Materials
  • % REV Exposure: 83%
  • % Upside to price target: 25%

Lundin Mining Corp.

  • Ticker: LUMIN.ST
  • Sector: Materials
  • % REV Exposure: 72%
  • % Upside to price target: 24%

Kingfisher

  • Ticker: KGF.L
  • Sector: Consumer Discretionary
  • % REV Exposure: 45%
  • % Upside to price target: 29%

Avast PLC

  • Ticker: AVST.L
  • Sector: Information Technology
  • % REV Exposure: 100%
  • % Upside to price target: 25%

Experian PLC

  • Ticker: EXPN.L
  • Sector: Industrials
  • % REV Exposure: 43%
  • % Upside to price target: 21%

Norsk Hydro ASA

  • Ticker: NHY.OL
  • Sector: Materials
  • % REV Exposure: 100%
  • % Upside to price target: 17%

Dassault Systemes SA

  • Ticker: DAST.PA
  • Sector: Information Technology
  • % REV Exposure: 91%
  • % Upside to price target: 17%

Glencore PLC

  • Ticker: GLEN.L
  • Sector: Materials
  • % REV Exposure: 42%
  • % Upside to price target: 15%

STMicroelectronics NV

  • Ticker: STM.PA
  • Sector: Information Technology
  • % REV Exposure: 31%
  • % Upside to price target: 16%

SGS SA

  • Ticker: SGSN.S
  • Sector: Industrials
  • % REV Exposure: 44%
  • % Upside to price target: 16%

Ericsson

  • Ticker: ERICb.ST
  • Sector: Information Technology
  • % REV Exposure: 95%
  • % Upside to price target: 15%

Siemens Energy

  • Ticker: ENR1n.DE
  • Sector: Industrials
  • % REV Exposure: 35%
  • % Upside to price target: 14%

Commentary:

ENR1n.DE, Overweight, PT EUR 29.00; Analyst: Ben Uglow, Capital Goods

"Siemens Energy's portfolio is well positioned to straddle the Energy Transition with exposure to both Renewables and Hydrogen (35% of revenues). The renewables exposure is through Siemens Gamesa, which represents 35% of the portfolio, and through the Siemens Energy transmission business, which supports the connection of clean energy to the grid. Siemens Gamesa is no. 3 in onshore wind and no. 1 in offshore wind, with exposure in over 90 countries around the world. This should position it to benefit from growth in renewables. Siemens Energy is one of the top 10 water electrolyzer manufacturers for hydrogen," the note said.

 

Adyen NV

  • Ticker: ADYEN.AS
  • Sector: Information Technology
  • % REV Exposure: 100%
  • % Upside to price target: 14%

Infineon Technologies AG

  • Ticker: IFXGn.DE
  • Sector: Information Technology
  • % REV Exposure: 30%
  • % Upside to price target: 14%

Commentary:

IFXFn.DE, Overweight, EUR 33.00; Analyst: Dominik Olszewski, Semiconductors

"Infineon is the number-one global automotive semiconductor manufacturer, with a commanding position in power semiconductors, one of the fastest growing applications as Electric Vehicle (EV) adoption accelerates. Increasing Regulatory/policy tailwinds are supportive of the EV opportunity including: (1) EU Commission proposals for a 50% CO2 reduction in fleet emissions by 2030 – implying c50% BEV penetration; (2) Californian ban on ICE passenger vehicles by 2035; and (3) Chinese EV targets. Our analyst has modelled €2.2bn of xEV revenues generated by 2025 (€1.2bn in 2022). This drives revised 2019-24 xEV revenue CAGR of 28%. Our analyst assumes c40% market share today trending down towards 30% on growing competition as market scales," the note said.

"Beyond electro-mobility, Infineon is a play on broader environmental regulation, supplying products for wind and solar power generation, and greater energy efficiency in home appliances," the note added.

"

Valuation looks attractive relative to product positioning, peers and the reinvestment runway. On our estimates, the stock trades on 3.9/3.4x EV/Sales and a 2.1%/3.7% FCF yield in 2021/22 (vs peers at 5x 2021 EV/Sales, 2016-19 cycle average FCF yield at 3.4%). Excluding the EV business, which we value at €10bn, we estimate that the rump trades at 3x EV/S 2021," the note concluded.

Knorr Bremse AG

  • Ticker: KBX.DE
  • Sector: Industrials
  • % REV Exposure: 78%
  • % Upside to price target: 13%

Bureau Veritas SA

  • Ticker: BVI.PA
  • Sector: Industrials
  • % REV Exposure: 48%
  • % Upside to price target: 12%

"Over the coming 5 years, we expect BVI to be best placed to benefit from structural trends including the End of ESG Self- certification, the energy transition and Agri- food testing. Bureau Veritas provides a wide range of certification, auditing and assessment services, and digital solutions that enable companies to achieve compliance, mitigate risk, improve sustainability performance and optimise efficiency along entire supply chains," the note said.

"The company trades at 17% EV/EBITDA discount to SGS and Intertek. Given improving end-market mix, deleveraging progress and restructuring benefits set to come through, the discount to peers looks steep, in our view," it added.

Wolters Kluwer

  • Ticker: WLSNc.AS
  • Sector: Industrials
  • % REV Exposure: 33%
  • % Upside to price target: 11%

Covestro AG

  • Ticker: 1COV.DE
  • Sector: Materials
  • % REV Exposure: 34%
  • % Upside to price target: 10%

Commentary:

1COV.DE, Overweight, PT 60.00 EUR; Analyst: Charlie Webb, Chemicals

Covestro offers a better sustainability opportunity than the market currently appreciates, the not said, adding that the company offer "gearing into sustainability, particularly in insulation and EVs, where changes in regulation and the EU Green Deal could drive accelerated demand."

"Covestro is a leading producer of rigid foams (MDI) used as an insulation material for both buildings as well as increasingly in EVs. These insulation materials are an important market for Covestro making up ~25% of EBITDA (at a depressed point in the cycle). The company estimates that the long-term CAGR demand for MDI is ~4% based on global GDP growth and substitution trends. We see upside risk to this demand from higher renovation rates across Europe as part of the Green Deal, that could drive a faster than expected recovery in the MDI supply and demand globally. We think this is unappreciated by the market," the note added.

"Covestro continues to screen attractively against its global peers trading on 5.9x and 4.8x our FY'21 and FY'22 EV/EBITDA respectively, markedly cheaper than peer average of 8x and 7x respectively. The stock also offers a compelling 5% FY'21 dividend yield that we believe is well covered, given a 7.8% and 11% FCF yield in FY'21 and FY'22, respectively," it concluded.

Solvay

  • Ticker: SOLB.BR
  • Sector: Materials
  • % REV Exposure: 70%
  • % Upside to price target: 11%

Kyushu Railway Company

  • Ticker: 9142.T
  • Sector: Industrials
  • % REV Exposure: 45%
  • % Upside to price target: 21%

Stanley Electric

  • Ticker: 6923.T
  • Sector: Consumer Discretionary
  • % REV Exposure: 40%
  • % Upside to price target: 11%

Cielo S.A.

  • Ticker: CIEL3.SA
  • Sector: Consumer Discretionary
  • % REV Exposure: 50%
  • % Upside to price target: 51%

GrXupo Traxion SAB de CV

  • Ticker: TRAXIONA
  • Sector: Industrials
  • % REV Exposure: 42%
  • % Upside to price target: 27%

YDUQS PART

  • Ticker: YDUQ3.SA
  • Sector: Consumer Discretionary
  • % REV Exposure: 100%
  • % Upside to price target: 21%

StoneCo Ltd.

  • Ticker: STNE.O
  • Sector: Information Technology
  • % REV Exposure: 90%
  • % Upside to price target: 11%

PagSeguro Digital

  • Ticker: PAGS.N
  • Sector: Information Technology
  • % REV Exposure: 100%
  • % Upside to price target: 14%

Smartsheet Inc

  • Ticker: SMAR.N
  • Sector: Information Technology
  • % REV Exposure: 100%
  • % Upside to price target: 30%

Splunk Inc

  • Ticker: SPLK.O
  • Sector: Information Technology
  • % REV Exposure: 50%
  • % Upside to price target: 39%

Dell Technologies Inc.

  • Ticker: DELL.N
  • Sector: Information Technology
  • % REV Exposure: 30%
  • % Upside to price target: 32%

Deere & Co.

  • Ticker: DE.N
  • Sector: Industrials
  • % REV Exposure: 76%
  • % Upside to price target: 32%

Commentary:

DE.N, Overweight, $335.00 PT ; Analyst: Courtney Yakavonis, Machinery

"Deere is one of the most defensive names within the broader Machinery universe driven by historically lower cyclicality of ag equipment relative to other machinery end markets and history of strong management execution," the note said.

"DE is positioned to remain resilient regardless of the Covid-19 headwind, with a stable, operational supply chain paired with replacement demand tailwinds across Ag product lines. Furthermore, DE is investing heavily in automation technology and AI, which our US Machinery analyst, Courtney Yakavonis notes as having the potential to generate the greatest degree of profitability improvement for farmers," it added.

NortonLifeLock Inc

  • Ticker: NLOK.O
  • Sector: Information Technology
  • % REV Exposure: 100%
  • % Upside to price target: 31%

Aptiv Plc

  • Ticker: APTV.N
  • Sector: Consumer Discretionary
  • % REV Exposure: 84%
  • % Upside to price target: 29%

Commentary:

APTV.N, Overweight, $160.00 PT; Analyst: Adam Jonas, Autos and Shared Mobility

"For those wishing to play the growth of BEVs, APTV is a solid name outside of direct autos manufacturers or battery makers. APTV is one of the best positioned names under our coverage to the dual-secular growth trends of electrification and autonomy; while also on track to be the industry leader in active safety. APTV is a global technology company serving the autos space with a growing focus on electric vehicles. APTV offers leading capabilities in both the brain and nervous system of the car, with products including central computes, connectors, electrical centers, wiring assemblies, and high voltage and active safety systems," the note said.

"Relative to other high growth names across other industries that are exposed to strong secular tailwind themes such as EVs and AVs, APTV trades at a reasonable valuation. APTV, at ~12x 2022 EV/EBITDA trades at a justified premium relative to other auto suppliers who trade on average ~5.7x 2022 EBITDA. The $160 PT reflects the strong 3Q, in-line 4Q outlook and stronger than expected 2021 outlook, partially offset by more conservative long term OP margin assumptions which our analyst has trimmed to 13.8% from 14.8% by the 2030 exit DCF year," it added.

Tenable Holdings Inc

  • Ticker: TENB.O
  • Sector: Information Technology
  • % REV Exposure: 100%
  • % Upside to price target: 25%

DXC Technology Company

  • Ticker: DXC.N
  • Sector: Information Technology
  • % REV Exposure: 47%
  • % Upside to price target: 25%

Chegg Inc

  • Ticker: CHGG.N
  • Sector: Consumer Discretionary
  • % REV Exposure: 100%
  • % Upside to price target: 19%

Cisco Systems Inc

  • Ticker: CSCO.O
  • Sector: Information Technology
  • % REV Exposure: 66%
  • % Upside to price target: 22%

Dick's Sporting Goods

  • Ticker: DKS.N
  • Sector: Consumer Discretionary
  • % REV Exposure: 80%
  • % Upside to price target: 19%

Proofpoint Inc

  • Ticker: PFPT.O
  • Sector: Information Technology
  • % REV Exposure: 105%
  • % Upside to price target: 16%

Ball Corporation

  • Ticker: BLL.N
  • Sector: Materials
  • % REV Exposure: 86%
  • % Upside to price target: 18%

Commentary:

BLL.N, Overweight, $110.00 PT; Analyst: Neel Kumar, Paper and Packaging

"Ball Corp is a pure play on the circular economy while offering strong growth potential and upside. BLL is the world's leading producer of aluminum beverage cans, with ~33% market share globally. The focus on recycling and limiting the use of single use plastics is growing rapidly. Aluminum is increasingly seen as a viable alternative to improve the circularity of packaging, especially in the beverage space. The ability for aluminum to operate within the circular economy is truly differentiated, 75% of all aluminum ever produced is still in circulation, compared to just 6% of plastic," the note said.

"Our analyst's Ball price target of $110 is based on a DCF framework to better capture the robust multi-year growth outlook beyond 2021. Our analyst's $110 PT implies EV/EBITDA multiples of ~19x 2021E EBITDA and ~17x 2022E EBITDA. Our team's DCF is based on a five year explicit forecast, a 2.5% perpetual growth, and a 6.5% WACC. This valuation is at a justified premium versus peers driven by its leading position in beverage cans, attractive business mix (i.e., highest beverage can exposure, strong earnings growth in aerospace, and new market opportunity in aluminum cups), and its robust multi-year growth outlook driven by its significant capacity expansion program," it added.

DocuSign Inc

  • Ticker: DOCU.O
  • Sector: Information Technology
  • % REV Exposure: 100%
  • % Upside to price target: 17%

Avaya Holdings Corp

  • Ticker: AVYA.N
  • Sector: Information Technology
  • % REV Exposure: 100%
  • % Upside to price target: 7%

Western Digital

  • Ticker: WDC.O
  • Sector: Information Technology
  • % REV Exposure: 30%
  • % Upside to price target: 13%

TransUnion

  • Ticker: TRU.N
  • Sector: Industrials
  • % REV Exposure: 80%
  • % Upside to price target: 13%

First Quantum Minerals Ltd

  • Ticker: FM.TO
  • Sector: Materials
  • % REV Exposure: 90%
  • % Upside to price target: 10%

Apple, Inc.

  • Ticker: AAPL.O
  • Sector: Information Technology
  • % REV Exposure: 40%
  • % Upside to price target: 10%

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